22 7 / 2014

Excited to see hmason continue to advance the bounds of data science research alongside (and within) the emerging tech ecosystem. Congrats on the launch of fastforwardlabs!

fastforwardlabs:

I’m very pleased to introduce Fast Forward Labs.

Fast Forward Labs is an independent data technology research lab. We focus on taking technologies that are just becoming possible, and making them useful.

We believe that the existing research structures are failing in 2014. We offer companies…

15 7 / 2014

bijan:

But here is the important thing about all of that product goodness — it didn’t come at a cost that breaks the magic of Twitter.

Contrast it to other products that continue to get bloated and heavy with clunky features. The posterchild is Microsoft Office but they are hardly the…

Amen to twitter’s unbloated magic — simplicity & product discipline.

14 7 / 2014

Miles Grimshaw provides a great overview of Yodlee’s S-1.  I’ve listed additional observations, following Miles’ highlights, below.

milesgrimshaw:

Yodlee just filed their S-1. Some of the highlights:

image

Customer Concentration

  • Bank of America was 14.9% of total revenue in 2013
  • Revenue from the three largest customers represented 35% of revenue in 2011, 31% in 2012, and 32% in 2013
  • 8 or the top 10 largest customers have been customers for more than 6 years (at EOY 2013)

Retention

  • Subscription and support revenue net retention rate was 115% for the year ended December 31, 2011, 114% for 2012, and 123% for 2013
  • Of the 28% increase in subscription and support revenue from 2012 to 2013, 23 percentage points resulted from increased revenue from existing customers
  • Of the 20% increase in subscription and support revenue from 2011 to 2012, 14 percentage points resulted from increased revenue from existing customers

Customer Base

  • 750+ organizations in over 10 countries
  • 450 financial institutions, including 9 of the 15 largest U.S. banks, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013)…these institutions subscribe to the Yodlee platform to power offerings that improve consumer satisfaction and enhance engagement, while capturing cross-sell and up-sell opportunities
  • ~300 Internet services companies
  • Receive subscription fees for 15.7 million of these consumers, whom we refer to as our paid users.

Data

  • Our platform collects a wide variety of end user-permissioned transaction-level data from over 12,500 sources and puts it in a common repository
  • Currently, over 75% of this data is collected from structured data feeds that are provided under the terms of our contracts with most of our FI customers
  • This direct data connectivity to large FIs is a significant competitive advantage for us
  • Where we do not have direct connections, we capture data using our proprietary information-gathering techniques

TAM

  • Celent, an international financial research and consulting firm, estimates that in 2013 U.S. and Canadian banks alone spent a total of $11.3 billion on external software, which includes purchasing costs and licensing fees associated with third-party packaged software 

Employees

  • As of March 31, 2014, approximately 80% of our total employees were based in India

Investors

  • Warburg Pincus owns 37.18%, Bank of America 12.71%, Institutional Venture Partners 12.64%, Accel Partners 9.25%

Misc

  • Some buzzwords: “We are a big data practitioner,” “We refer to our platform as the Yodlee Financial Cloud,” “Deliver applications and new solutions at scale with powerful network effects”
  • We provide subscription services on a business-to-business-to-consumer, or B2B2C, basis to financial services clients, whereby our customers offer Yodlee-based solutions to their customers, whom we refer to as end users
  • Our growth strategy addresses two key drivers of our business: number of paid users and revenue per paid user
  • Our subscription and support contracts with our customers generally contain a minimum subscription fee, and usage-based fees which depend on the extent their customers or end users use our platform

Other observations, in note form:

Founded in 1999.  basically lost money for 15 years.  Became EBITDA positive in 2013 (~$4-5M on $70M revenue)

Why so hard to make money?

  • $134M NOLs — may not even use them before they begin to expire in 2022
  • Not a GM problem.  Now @ >60%, though for their business could be 80%+ so maybe it is also an issue.  Not clear if any people data integration costs are here, but it includes: DCs, payment processing fees, data costs, etc.
  • High sales costs.  >20% sales even at $70M.  They sell to large banks (slow), have large deployment costs, and yet get no revenue unless those FI’s enroll subscribers to the service because Yodlee only gets paid per subscription (e.g., $.30/sub/mo)
  • High R&D costs — still very labor intensive is my guess. This is on top of COGS. 80% of FTEs are in India as some indication out of 776 FTEs total (3/2014). ~$100K rev/FTE
  • 75% of data is from structured data sources. Is it the 25% that kills them? Or all of it?
  • Difficult dynamics, though very sticky once in. Existing customers growing 20% per year — contract expansions through new subscriptions.
  • Customer concentration — top 3 = 35%+ revenue

10 years to get to $33M

Contracts — 1-3 years.  Have some minimums resulting in revenue backlog of $70M+ though they say it’s more meaningful to think of subscription revenue as replacing this over time.

Tailwinds for future

  • B2C awakening — subscribers wanting portfolio aggregation services
  • New challenges like digital advisers. New financial servicesCore products

Core products

  • Account aggrgation and analytics
  • Money movement
  • Account verification — do they really have that personal NW?

Competitors

  • Aggregation:  FiServ (CashEdge) and Intuit
  • Account verification: microBilt and Early Warning Systems
  • Online bill pay: Fiserv and FIS Global

14 7 / 2014

07 7 / 2014

Undercurrent outlines a new organizational operating system, a Responsive OS, that  enables companies to better sense and respond to shifts in culture, customer expectations, competition, and technology to become stronger in the face of continual disruption.

The Operating Model That is Eating the World from undercurrent

06 7 / 2014

Enjoyed judging the cleanweb #startupbattles at AlleyNYC last week. Congratulations to the evening’s champion, Jamyn of Dash Labs (with his killer USA pants)! Check out their product.

Enjoyed judging the cleanweb #startupbattles at AlleyNYC last week. Congratulations to the evening’s champion, Jamyn of Dash Labs (with his killer USA pants)! Check out their product.

06 7 / 2014

06 7 / 2014

"The main question is: is there anyone around the board table who is actually in a position to ask the right questions? The other question one needs to ask is what percentage of the non-execs are tech savvy or digital? If you look at the composition of FTSE boards or if you talk to the people who recruit for FTSE boards, their recruitment narrative over the past 5 to 10 years was “get us more women and get us people from emerging markets.” Increasingly it’s “get us people with tech experience.” It’s not like these guys [on the boards] don’t know [about tech], but they are way, way behind the curve compared to how fast this market is changing."

http://m.us.wsj.com/articles/BL-DGB-36031

Better yet: women in tech!

(Source: hackingfinance)

29 6 / 2014

The more affinity there is between two VCs investing in a firm, the less likely the firm will succeed, according to research by Paul Gompers, Yuhai Xuan and Vladimir Mukharlyamov.


by Carmen Nobel

To illustrate the old adage that birds of a feather flock together, there may be no better example than the venture capital industry.

A recent study finds that venture capitalists have a strong tendency to team up with other VCs whose ethnic and educational backgrounds are similar to their own. Unfortunately, that tendency turns out to be bad for business.

“AT THE EARLY STAGE OF A COMPANY, YOU WANT THE PEOPLE AROUND THE TABLE TO CHALLENGE EACH OTHER.”
In the paper The Cost of Friendship, three Harvard researchers show that the more affinity there is between two VCs who co-invest in a new company, the less likely it is that the company will succeed.

"Much of the homophily literature in business research talks about the positive benefits of working with people who are similar to you—ease of communication, comfort level, and the like," says Paul Gompers, the Eugene Holman Professor of Business Administration at Harvard Business School, who cowrote the paper with HBS Associate Associate Professor Yuhai Xuan and Vladimir Mukharlyamov, a graduate student in the Economics department at Harvard. "What we show is that, in this context, the effects can be quite negative."

The team set out to answer a few key questions: What specific characteristics influence individuals’ desire to work together on an investment deal? And given that influence, how does affinity affect investment performance? Do common characteristics lead to better communication, which then leads to better decisions? Or does like-mindedness lead to narrow decision-making, to the detriment of the deal?

Working with people similar to yourself can lead to poor decisions.
Photo: iStockPhoto
The research began with a database of 3,510 individual venture capitalists and their investments in 12,577 companies between 1973 and 2003. Over the course of six years, the research team collected detailed biographical information on each VC, including ethnicity, educational background, and employment history. They then looked at who had invested with whom, and what those co-investors had in common.

Across the board, the researchers found that venture capitalists tended to co-invest in deals with other VCs who possessed similar characteristics. This was true regardless of whether the similarities were ability-based or affinity-based. For example, two VCs who graduated from the same undergraduate school were 34.4 percent more likely to collaborate on a deal than were two VCs from different alma maters. And the probability of collaboration between VCs increased by 39.2 percent if they were members of the same ethnic minority group.

The data held up with what Gompers had observed qualitatively in his two decades of studying the venture capital industry. “There are strong affinity groups with Indian venture capitalists and entrepreneurs and with Chinese venture capitalists and entrepreneurs,” Gompers says. “And there’s sort of a cabal of Jewish entrepreneurs and VCs as well.”

The team then examined how these similarities had affected the outcomes of the portfolio companies in the study. (For the purposes of the paper, a successful outcome was defined as one in which a company eventually filed for an initial public offering.)

They found that the probability of success decreased by 17 percent if two co-investors had previously worked at the same company—even if they hadn’t worked there at the same time. In cases where investors had attended the same undergraduate school, the success rate dropped by 19 percent. And, overall, investors who were members of the same ethnic minority were 20 percent less successful than investors with different ethnic backgrounds.

It dawned on the researchers that affinity might make it easier for one venture capitalist to guilt-trip another into making a bad deal—doing a favor for a friend. “We thought it could be that they only syndicate the deals to their friends that they can’t get anyone else to do,” Xuan says.

To test for that possibility, the team assessed the 12,577 investments according to measures that had proven to be indicators of future success, according to previous research. Such indicators included whether a company’s founder had a history of founding successful companies, the stage of the portfolio company (risky early stage versus less-risky later stage), and how much media attention the company had received at the time of investment.

Controlling for these factors, they found that the quality of the deals was not apparently affected by co-investor affinity. In other words, birds of a feather did not necessarily pick worse investments than birds of different feathers on day one. “It’s not like we invest into a deal that’s bad to start with, and therefore we get a bad outcome in the end,” Xuan says.

Rather, the lack of success among similar investors seemed to lie in the decisions that followed the investment.

In addition to granting cash, venture capitalists are heavily involved in hiring or firing the CEO of the portfolio company, choosing a board of directors, devising an overall strategy, identifying potential partners, and so on. Indeed, the researchers found that the negative affinity effect was strongest in early-stage deals, which generally require more input from investors than do later-stage deals.

"[The] lower likelihood of success of co-investments between venture capitalists that share similar characteristics is triggered by them making inefficient decisions or even mistakes that they would otherwise avoid," the researchers write in The Cost of Friendship.

They attribute this inefficiency to “groupthink,” the psychological phenomenon in which members of a group make poor decisions because they fail to consider viewpoints other than their own. “When you are really familiar with each other, you tend not to go outside of your circle to get an outside opinion,” Xuan says.

The findings are in line with some organizational behavior studies, which have found that that work groups perform better when members learn from one another’s disparate experiences. “I think this carries over to venture-funded startups, in which having a diversity of venture capitalists around the table is actually critical to their success,” Gompers says. “Take two people who once worked at Google, who went to Harvard Business School, and who are Indian American. They probably look at things in a very similar way and are unlikely to challenge each other. But at the early stage of a company, you want the people around the table to challenge each other.”

Gompers and Xuan make a point of sharing the finds with students in the MBA program at HBS, many of whom pursue careers in the venture capital industry. In fact, people with Harvard MBAs make up 24.4 percent of the professional ranks at venture capital firms in the United States, according to a study by PitchBook. A network that powerful must beware the power of groupthink and collaborate with other networks, the professors advise.

"Students come to HBS because, in addition to having access to great faculty like Yuhai, they get the opportunity to interact with other students who are extremely talented and successful," Gompers says. "And of course they should continue to tap this network.

"But it’s likely that if you’re an HBS MBA, you think like other HBS MBAs, because you took the same courses from the same professors. And it’s important for students to realize that it might be useful to have a diversity of people around the table when you make investment decisions or you’re working on new ventures. That, at least for me, is an important prescriptive element of the paper."

10 6 / 2014

14 5 / 2014

"

A Hong Kong VC fund has just appointed an algorithm to its board.

Deep Knowledge Ventures, a firm that focuses on age-related disease drugs and regenerative medicine projects, says the program, called VITAL, can make investment recommendations about life sciences firms by poring over large amounts of data.

Just like other members of the board, the algorithm gets to vote on whether the firm makes an investment in a specific company or not. The program will be the sixth member of DKV’s board.

"

02 5 / 2014

chibirmingham:

NY Times: The Future of Everything

This week I got the chance to team up with Jennifer Daniels at the NY Times to put together this infographic on the future of technology. The piece will be in print this sunday, but it goes online today on the NY Times site “The Upshot.” You can check it out here: future. Thanks to Jennifer Daniels for the great assignment!

28 4 / 2014

jaydengvc:

Just recently I read Kanyi Maqubela’s post on distribution waterfalls and carried interest and felt compelled to write a rebuttal.

First of all, there is no such thing as a European style waterfall - not anymore at least. If anything, most American VC firms are the ones who use that supposedly…

28 4 / 2014

schlafnotes:

Since I joined RRE Ventures last fall, I’ve spent time researching mobile on-demand services that we are able to access with a push of a button. “On-demand mobile services” (ODMS) is a broad category so I believe it’s important to start with a definition. My friend Semil Shah defines ODMS as…

UBER ALL THE THINGS! Another quality post (& infographic) by schlafnotes highlights the ‘Uberification’ of the US Services Economy.

25 4 / 2014

work—bench:

image


From the Bloomberg Enterprise Technology Summit

By Jonathan Lehr, Venture Director

April 25, 2014

Yesterday, Work-Bench was an event partner for Bloomberg’s annual Enterprise Technology Summit held in New York. It’s an extremely worthwhile, informative event with well moderated panels…

Great Bloomberg Enterprise Technology Summit recap from the fine folks at Work-Bench.